Illicit Transaction Activity Reaches All-Time High in Value, All-time Low in Share of All Cryptocurrency Activity
SPONSORED CONTENT: Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020. But those numbers don’t tell the full story. Cryptocurrency usage is growing faster than ever before. Across all cryptocurrencies tracked by Chainalysis, total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020’s totals. Given that roaring adoption, it’s no surprise that more cybercriminals are using cryptocurrency. But the fact that the increase was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all.
In fact, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower. Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever. As always, we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes. For instance, we found in our last Crypto Crime Report that 0.34% of 2020’s cryptocurrency transaction volume was associated with illicit activity — we’ve now raised that figure to 0.62%. Still, the yearly trends suggest that with the exception of 2019 — an extreme outlier year for cryptocurrency-based crime largely due to the PlusToken Ponzi scheme — crime is becoming a smaller and smaller part of the cryptocurrency ecosystem. Law enforcement’s ability to combat cryptocurrency-based crime is also evolving. We’ve seen several examples of this throughout 2021, from the CFTC filing charges against several investment scams, to the FBI’s takedown of the prolific REvil ransomware strain, to OFAC’s sanctioning of Suex and Chatex , two Russia-based cryptocurrency services heavily involved in money laundering.
However, we also have to balance the positives of the growth of legal cryptocurrency usage with the understanding that $14 billion worth of illicit activity represents a significant problem. Criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimizes innocent people around the world. In this report, we’ll explain exactly how and where cryptocurrency-based crime increased, dive into the latest trends amongst different types of cybercriminals, and tell you how cryptocurrency businesses and law enforcement agencies around the world are responding. But first, let’s look at a few of the key trends in cryptocurrency-based crime. DeFi’s rise leads to new opportunities in crypto crime
What’s changed in the last year? Let’s start by looking at what types of cryptocurrency-based crime increased the most in 2021 by transaction volume. Two categories stand out for their growth: stolen funds and, to a lesser degree, scams. DeFi is a big part of the story for both.
Let’s start with scams. Scamming revenue rose 82% in 2021 to $7.8 billion worth of cryptocurrency stolen from victims. Over $2.8 billion of this total — which is nearly equal to the increase over 2020’s total — came from rug pulls, a relatively new scam type in which developers build what appear to be legitimate cryptocurrency projects — meaning they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities — before taking investors’ money and disappearing. Please keep in mind as well that these figures for rug pull losses represent only the value of investors’ funds that were stolen, and not losses from the DeFi tokens’ subsequent loss of value following a rugpull.
This sponsored content is a preview of Chainalysis’ 2022 Crypto Crime Report. Sign up here to get your copy .
We should note that roughly 90% of the total value lost to rug pulls in 2021 can be attributed to one fraudulent centralized exchange, Thodex, whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds. However, every other rug pull tracked by Chainalysis in 2021 involved DeFi projects. In nearly all of these cases, developers have tricked investors into purchasing tokens associated with a DeFi project before draining the tools provided by those investors, sending the token’s value to zero in the process.
We believe rug pulls are common in DeFi for two related reasons. One is the hype around the space. DeFi transaction volume has grown 912% in 2021, and the incredible […]
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